US Treasury Jacks Up Bill Sales to Kickstart Borrowing Spree

The US Treasury building in Washington, DC, US, on Saturday, June 3, 2023. The Senate last week passed legislation to suspend the US debt ceiling through the 2024 election, ending a drama that threatened a global financial crisis ahead of the Treasury secretary's June 5 deadline to avoid a default.

(Bloomberg) -- The US Treasury Department on Tuesday boosted the size of its shortest tenor benchmark bill auctions to rebuild its cash buffer to be more in line with its policy and finance larger deficits.

Treasury said it plans to sell $67 billion of three-month bills Monday, $2 billion more than the previous offering at that tenor. It lifted the size of its six-month operation to $60 billion from $58 billion, and the one-year sale to $40 billion from $38 billion. It also announced a $5 billion increase in the size of the 6-week auction to be sold on Tuesday, taking it to $55 billion.

Even though the Treasury boosted the size of its quarterly bond sales for the first time in 2 1/2 years to help finance a surge in budget deficits, the government still needs to finance itself, which it can do by quickly ramping up bill supply. In addition, the market has shown that it has the capacity to easily digest the deluge of T-bills as spreads relative to overnight index swaps remain tight.

In the wake of Washington's agreement in June to suspend the debt limit until 2025, the Treasury issued roughly $799 billion in securities on net through the end of July, in order to replenish its cash balance. So far, investors have easily digested the first wave of supply, with money-market mutual funds taking up roughly two-thirds of the issuance.

The Treasury Borrowing Advisory Committee told Secretary Janet Yellen it's comfortable with T-bill supply taking a larger share of total outstanding debt before returning to the recommended 15% to 20% range, in order to maintain a regular and predictable approach to increasing coupon issuance.

The Treasury increased its net borrowing estimate for the July through September quarter to $1 trillion, well up from the $733 billion amount it had predicted in early May. Part of the higher estimate is due to a bigger cash balance planned for the end of September. The cash balance was $458 billion as of Aug. 1, which is less than the Treasury's revised forecast of $650 billion.

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